India’s 10-year bonds rose, driving yields to a seven-week low, on speculation turmoil in global financial markets will prompt the central bank to pause interest-rate increases. Stocks extended last week’s rout after Standard & Poor’s cut its top credit rating for the U.S. to AA+ from AAA, saying a fiscal consolidation plan fell short of what was need to reduce “medium-term debt dynamics.” Downside risks to India’s economic growth may have increased following the ratings move, the central bank said in a statement today. “The Reserve Bank of India can’t tighten aggressively if the global scenario deteriorates further,” said Alok Singh, a Mumbai-based fund manager at BNP Paribas Asset Management India Pvt. “The probability of a pause in rates has increased.” The yield on the 7.8 percent bonds due April 2021 declined five basis points, or 0.05 percentage point, to 8.26 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. It had earlier touched 8.21 percent, the lowest since June 20. The RBI has raised the benchmark repurchase rate 11 times since the start of 2010, last increasing it by 50 basis points on July 26 to 8 percent to damp inflation. The central bank is monitoring global developments and the impact on India’s currency and macroeconomic stability, the statement said. “We will respond quickly and appropriately to the evolving situation,” according to the statement. India’s economy may expand 7.2 percent in the year through March, less than an earlier prediction of 7.7 percent, according to an Aug. 1 research report from Morgan Stanley. The prime minister’s council projected 8.2 percent growth from 9 percent previously on the same day. The recent developments in the U.S. and the euro area could have some impact on India, Pranab Mukherjee, India’s finance minister, said in a statement today. The softening of global commodity prices will help maintain the country’s fiscal deficit and check inflation, Mukherjee said. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined 21 basis points to 7.78 percent, the lowest level since April 19. To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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